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Uber takes action that could set off price war

There are multiple car-for-hire services in San Francisco, so one company is taking action that could set off a price war.
January 21, 2014 6:11:29 PM PST
There are now several companies that let you order a ride by tapping your smartphone. With competition getting stiffer, one company is taking action that could set off a price war. 7 On Your Side takes a look at what's going on.

This is already a popular service. It's called Uber and it has a low-cost service called UberX. Now the low cost is even lower. It's slashing prices in 16 cities including San Francisco. So how cheaply can you get a ride around town? We decided to check it out.

Blake Schneider just got off work in San Francisco's Financial District when we met up with him. We watch as he taps his phone and gets a ride to a friend's house.

"It's just easy. 'Here, pick me up right here, drop me off at my destination, I'm good to go,'" said Schneider.

Blake hails his rides on Uber. It's one of several growing companies that use apps to connect drivers with passengers.

"If you go out and have a drink or two, it's just much safer," said Schneider.

Uber provides several car-for-hire services, including UberX -- its cheapest option. UberX was first in San Francisco to hookup armature drivers with passengers through an app. Now facing newer rivals -- Sidecar and Lyft -- so now Uber is trying to capture a bigger share of the market by slashing its prices on UberX by 20 percent, at least temporarily.

"Our minimum fare used to be $8. Now it's $5," said Abyzov.

Uber manager Ilya Abyzov says the company won't make money with lower fees during this promotion and it isn't sure how long it will last, just hopes to win more customers.

"If we make it absurdly cheap so you don't need to own a car any more, you can use Uber pretty much any time because it's so affordable. What we can do to actually drive volume for drivers and help them make more money?" said Abyzov.

The price break won't change Uber's so-called surge pricing. That's when fares can double or triple during rush hours. It happens when Uber has too few drivers and too many riders.

"Whenever prices are higher than normal, we warn you about that, and you have to actually confirm that you accept those rates," said Abyzov.

It happened when Schneider called for an Uber car at 6 p.m. The app said it will cost two and a half times the normal fare. He says even with that, it still saves him money.

"A lot of times it's cheaper than trying to find parking, the cost of parking," said Schneider.

Uber's price break comes just weeks after rival Lyft announced it will charge set rates instead of taking donations.

San Francisco cab drivers don't have any choice. Their rates are locked in by city code.

Here's how the competition stacks up:

    With the 20 percent reduction, the UberX pickup fee is $3.
    On Lyft it's $2.50, plus a $1 insurance fee.
    In a cab, it's also $3.50 at pickup.

    The per-mile fee is $1.50 on UberX.
    $1.90 on Lyft.
    And $2.75 in a cab.

    Per minute fees are 30 cents on UberX.
    40 cents on Lyft.
    And 55 cents in a cab if it's stalled or waiting.

    Then there are surcharges:
    Uberx fares multiply according to demand.
    Lyft charges "prime time tips" of up to 200 percent.
    In a cab, rates are uniform, tips are up to you.

That brings us back to Schneider. By the time he confirmed his ride, the price dropped to 1.7 times the $7-$8 fare. His ride got there in five minutes and he was off.

So will this set off a price war? Neither Lyft nor Sidecar responded to our request for comment. Sidecar also recently established set prices instead of donations, but has not publicly revealed the rates. We'll be following up to see how prices shape up as competition heats up.

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